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2015 (10) TMI 2423 - ITAT LUCKNOW

2015 (10) TMI 2423 - ITAT LUCKNOW - TMI - Disallowance u/s 14A read with Rule 8D - Held that:- None of the contentions raised by the Ld. AR of the assessee is rendering any help to the assessee in the present case and none of the judgments cited by him is applicable in the facts of the present case and the disallowance made by the AO and confirmed by the Ld. CIT(A) is in accordance with Rule 8D and section 14A of the Act and therefore, we find no reason to interfere in the order of the Ld. CIT(A .....

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s regarding confirmation of the addition of ₹ 304622/- u/s 14A read with Rule 8D of the Income Tax Rule. 3. Ld. AR of the assessee submitted written submissions which are reproduced below:- PARASNATH TECHGARMENTS PRIVATE LIMITED ASSESSMENT YEAR 2012-13 Justification of Non Applicability of Section 14A Facts of the Case: 1. The Assesses company has made an investment of ₹ 17000000/- by way of equity shares in Mahavir Spinfab Private Limited in earlier years. No investments has been ma .....

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uring garments & exporting the same to buyers. The bank releases the Packing Credit limit on the basis of Export Orders received by the company for purchase of raw materials for Manufacturing of the goods. When the goods are manufactured and shipped to the foreign buyers, the bank releases the funds under FOUBP/FOUBNLC Limit on the basic of Bill of Lading produced before it. Thus the funds released and interest charged by the bank on both the limits are for business purpose only and there is .....

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on of Funds: A) Fixed Assets 92.50 102.70 88.18 B) Investments 170.00 170.00 170.00 C) Net Working Capital 302.91 201.42 183.75 TOTAL 565.42 474.12 441.93 6. It is evident from the above figures that: 7. Ban-owed funds from the bank ₹ 170.50 lacs has been applied in current Asses amounting to ₹ 302.91 lacs comprising of Inventory & debtors and other current assets and no part has been used for making in investment in Mahavir Spinfab Pvt Ltd . 8. The company has sufficient own fun .....

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ry , a sum of ₹ 12000/- has already been added back in the computation of Total Income towards expenditure incurred as stipulated u/s 14A of the Act , filed on your record, hence no disallowance should be made under Section 14A. RECENT JUICIAL JUDGEMENTS: 1. It is established Law in the arena of Section 14A read with Rule 8D that if no expenditure has been incurred or if there is not any nexus between the Expenditure and Investment, question of disallowance does not arise. In support of th .....

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2014 it was held by the hon'ble High Court that in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance.( Copy of Order enclosed} In the Case of CIT Vs. HOLCIM INDIA P. LTD. (Delhi High Court) September, 2014, It was held that in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance.( Copy of Order enclosed ) In the case of ACIT Vs. Mr. M. Baskaran, (ITAT CHENNAI) June2014, the court o .....

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. M/s Lakhani Marketing lnc (HighCourt P&H) April 2014 , the court observed that " The contention raised on behalf of the revenue is that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assesse was in common kitty, as held by this Court in CIT vs. Abhishek Industries Limited, (2006) 286 ITR 1(P&H) and therefore, disallowance under section 14A was justified. We do not .....

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claim for exemption. In such a situation, section!4A could have no application." .( Copy of Order enclosed ) In the case of Shiva Industries & Holding Limited Vs. ACIT 59 DTR 182 (ITAT Chennai Bench), It has been held that if Assessee has not earned any exempt income. No ' disallowance under section 14A can be made. 3, In the Appellant Own case for the Ass Year 2009-10, the Learned CIT (A)-l has misinterpreted the provisions of the Law by Following the Decision of Techopack Advisors .....

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of ₹ 6500000/- during A.Y. 2007-08 and ₹ 10500000/-during A.Y. 2008-09 out of Own funds, earlier parked in stocks and debtors, by way of Realization of Export Debtors in Pre & post Shipment Loan accounts . As per terms of the Sanction of Pre-Shipments & Post-shipment Credit facilities all the sale proceeds are required to be credited in Banks Loan Account , accordingly the Assessee realized its own funds in the same Loan Accounts. The Learned CIT(A)-1 has also failed to appr .....

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cannot be any disallowance u/s 14A of the Act. Wallfort Shares & Stock Brokers Limited Vs. IT0310 ITR 421 (Bombay) The Hon'ble High Court held as under: 'What Section 14A contemplates is the expenditure actually incurred for earning Tax Free Income and not assumed of deemed expenditure. In these circumstances, the decision of Tribunal in rejecting the alternate argument of Revenue cannot be The above view has been upheld, on Appeal, by the Hon'ble Supreme Court vide Judgment dat .....

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on is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of Section 14A, the first phrase is "for the purposes of computing the total income under this chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within Section 14A. The next phrase is "in relation to incom .....

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ncome for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under section 14A." "One needs to read the words "expenditure incurred" in section 14A in the context of the scheme of the act and , if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the "total income" for t .....

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rect. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. In the View of above facts and Judicial Preannouncements of Jurisdictional High Court and other Courts, the disallowance u/s 14 A is not called for. 4. He also submitted that as per audited balance sheet for present year and preceding four years available on page 56 of the paper book, it ca .....

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his contention, he placed reliance on a judgment of the Hon ble Apex Court in the case of Rajasthan State Warehousing Corporation Vs. CIT reported in 242 ITR 450. He also submitted that there is violation of Section 14A (2) of the Act because no satisfaction has been recorded by the AO. 5. We have considered the rival submissions. We find that this is admitted position of fact that the amount was invested in shares to the extent of ₹ 170 lakh at the end of FY 2007-08 and the same is conti .....

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the present year as well as in the preceding four years. In the light of this fact that the assessee has used mixed fund for making investment in shares, as per Rule 8D, proportionate disallowance is to be made if the assessee is not able to establish by bringing direct nexus on record that the entire investment is out of interest free fund and as a consequence, entire interest bearing borrowing fund was used only for earning taxable income. This is not the case of the assessee that the assessee .....

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business, neither any contention is raised nor any evidence has been brought on record that in fact, such loan from bank was actually used only for export business whereas, an uncotroverted finding has been given by CIT (A) in an earlier year that almost entire investment is routed through the bank loan account. Regarding this contention that there was no actual dividend income in the present year and reliance on the judgment of the Hon ble Allahabad High Court rendered in the case of Shivam Mot .....

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n shares, actual receipt of dividend in the present year is not necessary. This judgment of the Hon ble Apex Court was not brought to the notice of Hon ble Allahabad High Court in the case of Shivam Motors (Supra) and the same was therefore not considered and hence, this issue is covered against the assessee by the judgment of the Hon ble Apex Court rendered in the case of Rajendra Prasad Moody (Supra). 6. Regarding this contention that no satisfaction was recorded by the AO as required u/s 14A( .....

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it is seen that not only satisfaction was recorded by the AO but he has given a basis of that satisfaction also that the entire investment of ₹ 170 lakh was made on the strength of credit receipt in assessee s Bank account from packing credit/post shipment credit. As per the fund flow statement available at page 56 of the paper book, entire investment of ₹ 170 lakh was made till 31.03.2008 and there is no fresh investment in the present year. Hence there is no merit in this contenti .....

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at as per the facts of the present case, interest on borrowed fund was very much incurred by the assessee and there is nexus between such interest expenditure and investment as per the finding of the Ld. CIT(A) in AY 2009-10 which could not be controverted by the assessee and therefore, there is no merit in this contention also and these judgments cited in support of this contention are not relevant in the present case. We have already dealt with this contention that if there is no dividend inco .....

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pose of making or earning income from other sources, the same is allowable and in Section 14A, it is prescribed that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since the language and requirement of both sections are similar, the ratio laid down by the Hon ble Apex Court in the case of Rajendra Prasad Moody (Supra) is applicable in the context of disallowance u/s 14A also. Ther .....

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